Business Rings Up Wins in Court

February 25, 2007

No issue stirs the anger of American business more than the American tort system, which subjects companies to what they views as frivolous lawsuits and financially crippling judgments that bear no relationship to the original harm.

"Tort reform" has chalked up modest legislative victories at the state and federal levels despite the well-funded opposition from plaintiffs' trial lawyers. And the U.S. Supreme Court came tantalizingly close to handing business a decisive victory when it strongly hinted that punitive damage awards -- the penalties juries are allowed to impose above and beyond compensatory damages -- should be no more than 10 times the actual harm suffered.

But last week, in a tobacco case that business and the Bush administration had hoped would clearly define what constitutes "excessive" punitive damages under the Constitution's due process clause, a divided court sidestepped the issue. Although the justices overturned a $79.5 million judgment against Philip Morris, the ruling focused on the instructions given to the jury about how to calculate punitive damages rather than the reasonableness of amount itself. The justices then sent the case back to the Oregon Supreme Court to decide how to rectify the error.

Business welcomed the narrow victory nonetheless. Justice Stephen Breyer, writing for an ideologically diverse five-member majority, said the jury should have been allowed to consider how many other smokers were misled by the tobacco company in addition to Jesse Williams, the janitor who smoked two packs of Marlboro a day for 45 years before his death from lung cancer in 1996. The Constitution, wrote Breyer, forbids using punitive damages to punish a company for injury it inflicts on those who are essentially "strangers to the litigation."

That admonition should help limit businesses' exposure to knockout damage awards in a range of pending litigation, including the 28,000 cases filed against Merck over its painkiller, Vioxx. But it would not affect class-action suits, like a number of those brought against asbestos makers, because the case is brought on behalf of both a named plaintiff and all others with similar claims.

In another business case from Oregon, decided on the same day, the Supreme Court threw out a $78.8 million antitrust judgment against Weyerhaeuser. A jury had found that the forest-products company engaged in predatory behavior by paying excessive prices to buy up alder logs it didn't need in an effort to deny them to competitors and drive them out of business. The unanimous court ruled that the competitor that brought the suit needed to show that Weyerhaeuser stood a good chance of recovering its investment in the logs after the competition had been eliminated.